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GrowGeneration (NDQ:GRWG): does massive revenue growth mean sunny times for cannabis?


GrowGeneration (NASDAQ:GRWG), the Denver-based hydroponics chain, has recently reported a massive increase in revenue in its preliminary full-year 2020 results.

Up 140% from the same period last year, revenue now stands at $192 million. In Q4 2020 alone, revenue rose 142% to $61.5 million, versus $25.4 million for Q4 2019.

Founded in 2014, GrowGeneration owns specialised hydroponic and organic garden centres. Hydroponics is an agricultural technique using mineral nutrients and water solution instead of soil to grow plants. These systems are used to maximise efficiency in crop cultivation, controlling the growing environment, reducing the number of pests and weeds while encouraging rapid plant growth.

Growing acceptance of marijuana in US market

The firm currently has 39 stores – 14 of which were acquired in 2020 – across the US in states such as Colorado, California, Nevada and Washington. It carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology and state-of-the-art hydroponic equipment to be used indoors and outdoors by commercial and home growers.

General gardening products are available in the stores, but with the North American legal marijuana market currently valued at $30.1 billion and set to grow at a compound annual growth rate of 15.5% to around $73.6 billion by 2027, according to Grand View Research, increasingly the main focus for GrowGen is going to be selling equipment to grow marijuana.

This forecast is based on the growing acceptance and adoption of legal marijuana for the treatment of chronic diseases like cancer as well as neurological problems such as epilepsy or depression. And if the Marijuana Opportunity Reinvestment and Expungement (More) Act passes in the US Senate the market could open up even further.

Growth through acquisition and sales

More specifically, GrowGen’s CEO attributes the triple-digit revenue growth to “strategic acquisitions of best-in-class hydroponic stores, exceptional same-store sales growth, and the expansion of our omnichannel and private label offerings.” Same-store sales were up 63% for the full-year 2020 versus full-year 2019 and in Q4, were up 58% for Q4 2020 versus Q4 2019.

CEO Darren Lampert expects further significant revenue growth this year as the firm plans to accelerate their growth strategy. It has increased the projected number of operating garden centres in 2021 to 55.

GrowGeneration also anticipates increased revenue guidance for this year to $335-$350 million, up $50 million from the Q3 2020 financial results which had stated revenue guidance as $280-300 million. The firm has also raised its 2021 adjusted EBITDA guidance to $38-$40 million.

As with many other cannabis-related stocks, the share price has risen dramatically in the last year. In January 2020 the share price was $4 and at time of writing it is around $50 per share. Analysts quoted on Nasdaq believe there is still some way to go and are currently rating GrowGen as a buy.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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